Contract Labour: Principal Employers Responsibilities

The Contract Labour (Regulation and Abolition) Act, 1970 (the “Act”) is one of the most significant labour legislations in India as the objective of the Act is to prevent exploitation of blue-collar workers and ensure facilitation of better conditions of work for them. One of the significant stakeholders, under this legislation, are the ‘principal employers’, who may not always be completely aware of their specific obligations under the legislation. However, the role of principal employers is very important for better implementation of the Act. In view of this, we have attempted to provide a brief overview of how principal employers can be more compliant under the contract labour legislation and ensure effectiveness of the regime.

Some of the important provisions and definitions under the Act are reflected below for ease of reference:-

Applicability of the Act

The Act applies to every establishment in which 20 or more workmen are employed or were employed on any day of the preceding twelve months as contract labour and to every contractor, who employs or has employed 20 or more workmen on any day of preceding 12 months[1]. This threshold for applicability, however, varies in certain states. For instance, in Maharashtra and Andhra Pradesh, the Act becomes applicable only if 50 or more workmen are employed or were employed on any day of the preceding 12 months as contract labour[2]. In West Bengal, on the other hand, the Act applies to every establishment employing 10 or more workmen[3]. Also, the Act is not applicable to establishments in which work only of an intermittent or casual nature is performed.

Who is a Principal Employer?

As per Section 2 (1) (g) of the Act, a principal employer would mean and include the head of any government or local authority; the ‘owner’ or ‘occupier’ or ‘manager’ of a factory (under the Factories Act, 1948); owner, agent or manager of a mine; or any person responsible for the supervision and control in an establishment. Establishment means any office or department of the Government or local authority or any place where industry, trade, business, manufacture, or occupation is being carried on[4].

Every principal employer to whom the Act becomes applicable has to take registration under the Act. In the event the principal employer does not obtain registration as required under the Act, he shall be punishable with imprisonment which may extend to 3 months or with fine which may extend to Rs. 1,000/- or with both and in case of continuing contravention, there will be an additional fine of Rs. 100/- for every day during which such contravention continues after conviction for the first such contravention. If the principal employer liable to be punished under the Act is a company, the company as well as every person in charge of, and responsible to, the company for the conduct of its business at the time of commission of the offence shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly unless any such person can prove that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.

Who is a Contractor?

As per Section 2 (1) (c) of the Act, a contractor would mean any person, who supplies contract labour for any work of an establishment and includes a sub-contractor. Every contractor to whom the Act applies has to take license under the Act.

Who is a Workman and what is Contract Labour?

The definition of ‘workman’ under the Act includes any person employed in or in connection with the work of any establishment to do any skilled, semiskilled or un-skilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be express or implied, but excludes certain categories as such[5]. As per section 2 (1) (b) of the Act, “a workman shall be deemed to be employed as ‘contract labour’ in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer”.

Certain Important Obligations of a Principal Employer

With the objective of improving the working conditions of contract labour, the Act has various provisions for providing basic facilities/ amenities to contract labour such as canteens, rest-rooms, first aid facilities, etc. The liability to provide these facilities are on the contractor. However, in the event a contractor does not provide these facilities to the contract workers, the liability is on the principal employer to provide these facilities. Any expenses incurred by a principal employer in providing these facilities to the contract labour can be recovered from the contractor.

The Act also imposes an obligation on the contractor to pay the wages to the contract workers within such period as fixed by the Government. However, the principal employer has to nominate a representative duly authorised by him who should be present at the time of disbursement of wages. The duty of such representative of the principal employer shall be to ensure that the wages are being paid to contract labour in accordance with the Act. The contractor has to ensure that the wages are disbursed in the presence of the authorised representative of the principal employer.

In the event the contractor fails to make the payment or makes short payment, then the liability is on the principal employer to pay the wages in full or the unpaid balance due. The principal employer can recover the amount so paid from the contractor either by deducting from any amount payable to the contractor or as debt payable by the contractor.

It is important to note here that penalties are sometimes imposable on the principal employer, in case of non-compliance under certain other labour welfare legislations. For instance, non-payment of provident fund contribution, non-maintenance of provident fund records is punishable with respect to a principal employer by imprisonment for a term which may extend to 1 year, or with fine which may extend to Rs. 4,000/- or with both[6]. Non-maintenance of ESI records by either contractor or principal employer is punishable with simple imprisonment up to 1 year or fine up to Rs. 4,000/- or with both[7].

Prohibition of Contract Labour in Core Activities

The Act prohibits use of contract labour in certain core activities of an establishment if the same has been specifically prohibited through a notification of the Central or State Government. Therefore, the principal employer and the contractor has to ensure that they are not employing contract labour in any of the core activities. For instance, the State of Andhra Pradesh has amended the Act to state that a core activity is one for which an establishment is set up and includes any activity which is essential or necessary to the core activity but activities related to canteen and catering services, sanitation works, loading and unloading operations, etc. does not come under the ambit of core activities unless these activities themselves are not the core activities of such establishment[8]. However, the principal employer may engage contract labour to a core activity if such activity is normally done through contractors or such activity does not require full time workers or if there is a sudden increase in the volume of work in the core activity which needs to be completed in a specified time[9].

Absorption and Regularisation of Contract Labour

Absorption of contract labour and their status once the contract comes to an end has always been one of the most contentious issues with respect to contract labour. In the case of Air India Statutory Corporations v United Labour Union[10], a three-judge bench of the Hon’ble Supreme Court held that the contract workers had a right to be absorbed as permanent workers on abolition of contract labour. However, this decision was overruled by a five-judge bench of the Hon’ble Supreme Court in the case of Steel Authority of India v National Union Water Front Workers and Others[11], where it was held that contract labour does not have a right to get absorbed as regular employees since nothing in this regard has been mentioned explicitly in the Act. The apex court in the case of Secretary, State of Karnataka v Uma Devi[12], inter alia, held that contractual employees does not have a right to be absorbed.

Also, Courts have ordered for regularisation of contract labour, in cases where it has been found that the principal employers employed contract labour where the purpose seems to be to avoid providing benefits available to permanent workers, or if the ultimate control is with the principal employer[13].

Engagement between Principal Employer and Contractor

A principal employer would typically have a contract for service with a contractor whereby the contractor will undertake to provide certain number of contract labour to the principal employer from time to time. Some of the important elements that needs to be considered as a part of these agreements, in view of the above discussions, are as follows:-

Scope of work for which contract labour is required (cannot be core activities or of perennial nature[14]);

Contractors representation of having complied and obligation to continue to be compliant with all responsibilities and obligations of a contractor under the Act and applicable state rules.

Periodic reporting and submission of records and documentary evidences pertaining to contributions made, registers maintained, etc., by the contractor to the principal employer.

Payment of service fee to contractor by principal employer;

Enabling clause for deductions from service fee payable, in case any expense is incurred by a principal employer on behalf of a contractor (as mentioned briefly above).

Zero control of principal employer over contract labour.

Separately, as good governance measures, the agreements between principal employers and contractors may also have provisions for conducting regular awareness programmes for making the contract labour aware of their rights and privileges under the Act. Also, independent committees may be set up which can be approached by contract labour in case of any grievance.

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